Correlation Between BJs Restaurants and China Southern

Can any of the company-specific risk be diversified away by investing in both BJs Restaurants and China Southern at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BJs Restaurants and China Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BJs Restaurants and China Southern Airlines, you can compare the effects of market volatilities on BJs Restaurants and China Southern and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BJs Restaurants with a short position of China Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Restaurants and China Southern.

Diversification Opportunities for BJs Restaurants and China Southern

0.83

Correlation Coefficient

BJs Restaurants  China Southern

Very poor diversification

The 3 months correlation between BJs and China is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern Airlines and BJs Restaurants is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BJs Restaurants are associated (or correlated) with China Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and China Southern go up and down completely randomly.

Pair Corralation between BJs Restaurants and China Southern

Assuming the 90 days trading horizon BJs Restaurants is expected to generate 1.42 times less return on investment than China Southern. But when comparing it to its historical volatility, BJs Restaurants is 1.43 times less risky than China Southern. It trades about 0.17 of its potential returns per unit of risk. China Southern Airlines is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  31.00  in China Southern Airlines on September 5, 2024 and sell it today you would earn a total of  13.00  from holding China Southern Airlines or generate 41.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

BJs Restaurants  vs.  China Southern Airlines

BJs Restaurants

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BJs Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

China Southern Airlines

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Southern Airlines are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Southern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BJs Restaurants and China Southern

The main advantage of trading using opposite BJs Restaurants and China Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Restaurants position performs unexpectedly, China Southern can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in China Southern will offset losses from the drop in China Southern's long position.

The idea behind BJs Restaurants and China Southern Airlines pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.